Is the Bank of America buyout of Countrywide Financial an example of prescient synergistic investing or a compelled merger to protect an already existing investment?
Countrywide has not been able to secure the funding it has needed to keep it's business going.
In August 2007, Bank of America invested $2 Billion in Countrywide 7 1/4% convertible preferred stock with a conversion price of $18. August 22,2007, the day the deal was announced, Countrywide was trading as high as $23.10. Countrywide was trading as low as $4.43 a share just two days ago.
If Countrywide were to fail, and the inability to secure funding made this a much more imminent possibility, Bank of America would show great losses on it's investment.
Bank of America announced this morning that it intends to buy Countrywide for $4 Billion, a small premium to where CFC has been trading.
Does this stave off potentially large losses for Bank Of America and create profitability? Probably. Only time will tell.